PwC: China M&A volume surged to hit record in 2021

Mergers and acquisitions in China surged in volume terms to a new record of 12,790 in 2021 while the value of deals fell, according to PwC.

The number of M&A deals on the Chinese mainland was up 21 percent year on year to a new all-time record, with China seeing a booming M&A trend that has been replicated globally, PwC said in its latest report.

Deal values, however, fell back to a more normal level in 2021, declining 19 percent from the record set in 2020, as some large transactions supported by the government and state-owned enterprises did not recur in 2021.

There were 97 mega-deals (with value above US$1 billion) in 2021, many of which were aligned with key domestic economic themes such as industrial upgrade (23 deals, US$56 billion), dual-circulation (17 deals, US$31 billion), and environmental, social and corporate governance (9 deals, US$26 billion).

Domestic strategic M&A hit a record high 5,143 transactions in 2021, yet in value terms fell to its lowest since 2015. And as expected, cross-border inbound activities were significantly impacted by the COVID-19 pandemic situation.

M&A dollars were focused on key fields such as industrial upgrade, the transition from traditional energy to renewables (which took energy and power deals to a record high), financials and technology investment.

Outbound M&A remained sluggish showing a modest increase. In terms of deal volume, the activity level rose slightly from that in 2020, with technology, health care and industrials being the top three most popular sectors in 2021. Deal values into all regions were low due to travel restrictions and geopolitical issues affecting cross-border M&A.

Of note, financial buyers were the biggest players in the outbound space for the first time in history as China-based private equities sought overseas landing.

Perhaps surprisingly, deal volumes ticked up somewhat in North America, although deal sizes were generally on the low side, the report said.

Li Ming, partner of PwC China, underscored that PE deals were more than half of the total by value for the first time ever.

"We have seen a continuation of the step-up in the number of PE mega-deals first seen in 2020," Li noted.

Deal values and volumes both remained at high levels in technology, industrials, and consumer sectors with increased PE participation in mega deals related to investment themes such as e-commerce, logistics, and China's transition to ESG (Environmental, Social and Governance).

Looking ahead, PwC said that China M&A is likely to continue at elevated levels in 2022, partly driven by record levels of dry powder for financial sponsors, and pressure to deploy.

The ongoing transformation of the Chinese economy, including the dual-circulation policy and focus on domestic consumption, industrial upgrade programs, development of second-tier cities and special regional clusters, and SOE reform and restructuring, can also be a major factor.

"With ongoing travel restrictions into China likely to continue and various geopolitical tensions being worked through, we do not anticipate any meaningful rebound in foreign inbound M&A," Li said.

"With the increasing number of free trade zones being established on the mainland, we expect more foreign direct investment into China as an alternative way instead of going through M&A."